What Is Cash Is King?
"Cash is king" is a slang term reflecting the belief that money (cash) is more valuable than any other form of investment tools, such as stocks or bonds. This phrase is often used when prices in the securities market are high, and investors decide to save their cash for when prices are cheaper.
It can also refer to the balance sheet or cash flow of a business; a lot of cash on hand is normally a positive sign, while strong cash flows allow a company more flexibility in regards to business decisions and potential investments.
A third use of the phrase can refer simply to a form of payment. Many businesses only accept cash as a form of payment, as opposed to credit cards or checks, hence the phrase "cash is king."
Key Takeaways
- "Cash is king" is a phrase that refers to the superiority of cash over other assets or forms of payment.
- Investors use a "cash is king" strategy when securities prices in the market are high and opt to save cash for when prices become cheaper.
- As a form of investment, it is important to not let cash sit idle but rather to invest so that returns are at least equal to inflation.
- "Cash is king" also refers to when companies have large cash balances on their balance sheets allowing them more flexibility in managing their business and their obligations.
- When businesses only accept payment in cash as opposed to credit cards or checks, the phrase "cash is king" is commonly used.
Understanding Cash Is King
In the world of investments, investors who favor the "cash is king" phrase may opt to buy short-term debt instruments or certificates of deposit (CDs) versus buying high-priced securities. If employing a strategy of holding a lot of cash, an investor should work with a financial planner to estimate future cash needs and rates of inflation.
Cash, cash equivalents, and some short-term debt instruments lose spending power over time if they do not offer a return that keeps up with the rate of inflation. This can cause holders of cash as a long-term investment to experience a negative return over time.
For example, a dollar today is worth more than a dollar tomorrow, due to the time value of money. It is wisest to invest cash to where there is a return equal to or above inflation, instead of leaving it sitting idle.
Many businesses prefer payment in cash as it reduces the time of being paid from a credit card company, reduces the risk of bad credit, and allows for the immediate use of the cash.
"Cash is king" also refers to the ability of a corporation or a business to have enough cash on hand to cover short-term operations, buy assets, such as equipment and machinery, or acquire other facilities. More businesses fail for lack of cash flow than for lack of profit.
A significant level of cash also allows businesses to weather economic downturns when people are in savings mode and demand for a business's products or service may be low or non-existent. The higher the level of cash, the easier a business will be able to pay its operating expenses and debt obligations even if revenues are low.
Real World Examples
In recent years, since the global financial crisis, tech companies such as Apple (AAPL) and Amazon (AMZN) have been hoarding cash on their balance sheets as opposed to spending it. In 2017, market disruptor Amazon made an extremely large cash outlay to purchase Whole Foods, sending panic through the grocery industry and putting the stock of companies such as Kroger into a temporary tailspin. Cash gave Amazon the power to make that large purchase and disrupt the markets.
Apple is also known for having a large amount of cash. At the end of Q3 2022, Apple had $179 billion in cash, which is a staggering number. With that amount of cash the company can pretty much do anything; purchase a variety of businesses, invest in , expand stores, and stay afloat without any issue during economic downturns. However, given the demand for Apple products, it is unlikely it would see a significant drop in demand for its products even during a downturn.
FAQs
The phrase means that having liquid funds available can be vital because of the flexibility it provides during a crisis. While cash investments -- such as a money market fund, savings account, or bank CD -- don't often yield much, having cash on hand can be invaluable in times of financial uncertainty.
What does the term "cash is king" mean? ›
"Cash is king" is a slang term reflecting the belief that money (cash) is more valuable than any other form of investment tools, such as stocks or bonds. This phrase is often used when prices in the securities market are high, and investors decide to save their cash for when prices are cheaper.
Is cash is king an idiom? ›
"Cash is king" is a colloquial phrase sometimes used in analyzing businesses or investment portfolios. It may refer to the importance of cash flow in the overall fiscal health of a business.
What is the full quote of cash is king? ›
I believe that “Revenue is Vanity, Profit is Sanity, but Cash is King”, the importance of cash flow can never be understated in a business.
Why is cash is king important? ›
Understanding “Cash is King ”
It emphasizes the point that maintaining stability, taking advantage of opportunities, and navigating uncertainty all depend on having enough cash. Financial distress can occur regardless of profitability or asset worth if there is a cash flow shortfall when needed.
Why is cash still king? ›
Cash fulfils all the needs outlined above as it is what is known as a bearer negotiable instrument: it belongs to the person who holds it. Unlike money which is transferred through electronic transfers, it is difficult to ascertain the source of cash and impossible to know the intended beneficiary.
Will cash always be king? ›
In the fast-paced world of finance, an investor's fortune can change in the blink of an eye. Yet, the concept that “cash is king” remains unwaveringly true. As a by-product of decades of market wisdom, this expression encapsulates the unparalleled value of liquidity in both times of prosperity and adversity.
What does "king" mean in slang? ›
Sometimes “friend,” “buddy,” “pal” or “bro” doesn't suffice. “King” is a word that goes a step further than others in proclaiming your love and appreciation. It's like: I see you out there. You're doing your thing, and we may not agree on the best song off Frank Ocean's “Blonde,” but you are a king.
Why is cash not king? ›
Whilst cash provides short-term stability, optionality, and liquidity, it would be unwise for it to form a significant portion of any long-term investor's portfolio who is looking to grow their real wealth.
What does it mean to say something is king? ›
used to say that someone or something is the most important part of something or has the most influence: In mergers and acquisitions, cash is king. They all followed the principle that the customer is king. Media executives are fond of saying that content is king.
Ultimately, cash was king during the Great Depression. Investors who held on to their money instead of putting it in risky stocks or bonds had the best chance of coming ahead.
Why is cash better than card? ›
There are no additional charges when you pay with cash. If you don't pay off a credit card purchase within 30 days, you'll likely pay interest (a monthly percentage charged on the amount you borrow from a creditor). Steering clear of interest by paying with cash can help you save money. Promotes careful spending.
Who invented cash is king? ›
The origin of the phrase “cash is king” is unknown, but it is said to have been popularised by Pehr G. Gyllenhammar, then CEO of Volvo, in 1988.
Is cash a king or queen? ›
Cash is akin to the king on a chess board, the most important piece, demanding protection. Working capital, like the queen, is the most powerful, flexible, and strategic tool on the board.
Is cash king in 2024? ›
Why cash is still king: investors take advantage of high interest rates and maximise flexibility. Cash is seen as the most attractive asset class moving into 2024, according to a new survey. But with interest rates forecast to drop, investors are likely to start reinvesting in risk assets soon.
What is the queen if cash is king? ›
Working capital, like the queen, is the most powerful, flexible, and strategic tool on the board. Just like the grandmasters of chess, Treasurers today are looking to deploy their king (cash) and queen (working capital) in tandem to influence and shape the long-term health and direction of the business.
Why cash is king for small business? ›
Companies are more likely to fail due to not having enough cash on hand versus not making enough profit. Having a large amount of cash on hand can provide a protective buffer against financial losses and allow for the opportunity to purchase discounted assets during a market downturn.
